Dixon Technologies shares surge 8.5%; brokerages bullish on Vivo JV, smartphone growth despite margin pressure

Despite Monday's rally, Dixon shares remained down 1.4 percent year-to-date, compared with a 10.8 percent decline in the Nifty 50. The brokerage optimism follows Dixon's Q2 FY27 results, which showed strong revenue growth but pressure on operating margins. Analysts expect the company's Vivo joint venture, new smartphone customers, exports and expansion into component manufacturing to drive earnings growth over the next few years.

Dixon reported a 48.7 percent year-on-year decline in consolidated net profit to Rs 343.7 crore for the September quarter, compared with Rs 670 crore a year earlier. Revenue increased 46.7 percent to Rs 21,794 crore, exceeding the CNBC-TV18 poll estimate of Rs 20,235 crore. The decline in reported profit largely reflected a lower fair value gain on Dixon's stake in Aditya Infotech. EBITDA rose 6.4 percent to Rs 597 crore, also beating expectations of Rs 579 crore.

However, EBITDA margin contracted to a multi-quarter low of 2.7 percent from 3.8 percent a year earlier, while gross margin fell to 5.1 percent from 7.1 percent. Motilal Oswal: Buy | Target price: Rs 15,900 Motilal Oswal cited better-than-expected revenue and adjusted profit, alongside smartphone volumes of 9.7 million units, up 29 percent sequentially. The brokerage raised its FY27 and FY28 earnings estimates by 7 percent and 2 percent, respectively.

It expects revenue, EBITDA and profit after tax to grow at compound annual rates of 29 percent, 36 percent and 39 percent, respectively, between FY26 and FY29. UBS: Buy | Target price: Rs 15,600 UBS described the quarter as directionally positive, highlighting improved EBITDA per smartphone and underlying profitability despite the expiry of mobile production-linked incentives. The brokerage expects the Vivo joint venture and component manufacturing scale-up to support EBITDA CAGR of 35 percent during FY28-FY29.

However, it flagged delays in the Vivo venture and elevated working capital as near-term concerns. Nuvama: Buy | Target price: Rs 14,900 Nuvama upgraded Dixon to Buy from Hold following the stock's recent correction. While the brokerage highlighted strong mobile manufacturing revenue and rapid IT hardware growth, it reduced FY27 and FY28 EPS estimates, citing lower smartphone volumes and margins. Dixon's mobile and other electronics manufacturing services business generated Rs 20,093 crore in revenue during Q2, up 50 percent year-on-year, accounting for 92 percent of total revenue.

Management maintained FY27 smartphone volume guidance of 33-34 million units, with the Vivo joint venture expected to contribute from Q4 FY27. Motilal Oswal expects margins to recover from FY28 as backward integration into displays, solid-state drives and mechanical components gathers pace. However, elevated memory prices, competitive pressures and slower-than-expected smartphone demand remain key risks.